What are payroll taxes and why are they important?

Payroll taxes are mandatory taxes paid by employers and employees to fund various government programs. For employers, these taxes include Social Security, Medicare, federal unemployment (FUTA), and state unemployment taxes. Employees pay Social Security and Medicare taxes through payroll withholding. Payroll taxes are crucial for funding social insurance programs like Social Security, Medicare, and unemployment benefits. Failure to comply can result in penalties from the IRS and state agencies. As of 2025, the Social Security tax rate is 6.2% each for employers and employees on wages up to $160,200 (26 U.S.C. §3101), and the Medicare tax rate is 1.45% each (26 U.S.C. §3101).